On December 1, 2014, Pitless Corp, a Privately Owned Corporation

question 156

Essay

On December 1, 2014, Pitless Corp, a privately owned corporation started operations. They signed a large contract to build a factory over a 2 year time period. Their client Mr. Falconi has paid them $150,000 in advance. Pitless will begin construction in 2 months time. In order to begin construction Pitless purchased the following items:
1. Crane for $160,000 on December 1, 2014. They expect this crane to be useful for 7 years.
2. Bulldozer for $36,000 to be used for 11 years.
3. On December 15, 2014, Pitless got an exceptional price on a plot of land. The land cost $275,000 and will be held for 10 years. At that point Pitless will expand operations and possibly change locations.
4. Pitless obtained two insurance policies. Policy A obtained December 1, 2014 in the amount of $12,500 for 24 months and Policy B obtained December 15, 2014 for $7,500 for 16 months.
Pitless also paid $36,000 to rent a dump truck on December 1, 2014 to be used in construction for the next 2 years.
Instructions
a. Record all the transactions.
b. Prepare the year end adjusting journal entries.
c. Show how the Property, Plant, and Equipment will be reported on the balance sheet as of December 31, 2014.

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Definitions:

Consolidated Entity

A group of companies that includes a parent and its subsidiaries, for which financial performance is presented in a single set of financial statements.

Book Value

The net value of a company's assets as recorded on the balance sheet, excluding intangible assets like goodwill.

Fair Value

Fair Value is the estimated market value of an asset or liability, based on current prices in an open market, used for financial reporting.

Gain Recognized

The profit that is realized and reported on the financial statements when an asset is sold for more than its carrying amount.